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Accusations, Political Point Scoring Over Britain's Finances; Obama Puts Pressure on BP; World Cup Results; Comparing Economies; Germany-France Dispute

Aired June 14, 2010 - 14:00:00   ET


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Tonight we're all about point-scoring, political point-scoring in Britain over the state of the country's finances.

More point-scoring by the U.S. president who says BP must hand over billions to pay for the damage it has done.

And a different kind of point scoring, Italy and Paraguay on this show, head-to-head, in our Economic World Cup.

The start of a new week, I'm Richard Quest, and, yes, I mean business.

Good evening.

The forecast for Britain's economy has gone from bad to worse, according to an official independent body set up by the new government to specifically examine U.K. finances. It is the Office for Budget Responsibility, the OBR. And it has released its first assessment of Britain's growth prospects and the holes in the country's balance sheets. These are the numbers that the new government will be using to justify its emergency budget, which is due out next week.

Come and join me over in the library and you'll see. This is the highlight number of the whole process. The OBR is forecasting growth of 2.6 percent in 2011, 2.8 percent in 2012. Now, that is give or take about 1 percent less than the previous Labour government was forecasting just before the election, at the time of the budget in March. So, slower growth in the U.K. is on the cards, according to the OBR. And the OBR said it has done this with changing the goalpost, if you like, for Conservatives, versus very tight ranges, for the numbers. It is not all bad news in the U.K., because they also say there will be lower borrowing costs over the next five years. Some $32 billion in the lower borrowing costs; about 8 billion pounds in the next year.

Now that is very welcome news for a country whose deficit is going to be 11 percent, 10, 11 percent this year. But again, it is like the old curative (ph), curative good in parts, the OBR says the structural deficit will be higher. And that, of course, is the bit that doesn't change when economic growth comes back. So, a bit on one side, a bit on the other. All of which, for the U.K. Chancellor George Osbourne, as he prepares his emergency budget, the U.K. Prime Minister David Cameron, over the last few weeks has been preparing the country for what is believed to be some particularly swinging cuts. And always the potential for an increase in taxation, perhaps, of course, a rise in VAT is being much talked about.

So, is really happening is Britain's new finance minister, who I just mentioned, George Osborn, is emphatic about who is to blame for this situation. He says it is the previous government, if Labour had kept its spending plans, then economic activity would be lower. And the former-and the current chancellor is pretty adamant, the mess the previous government left behind is even bigger than we thought.


GEORGE OSBORN, U.K. FINANCE MINISTER: Borrowing is going to be higher. That is the structural borrowing that doesn't go away when the economy grows. And, of course, the growth of the economy is going to be lower than we forecast, the March budget, in each year. So, unfortunately it is worse than we thought, and labor tried to fiddle the figures and they've been caught out.


QUEST: The man who was-according to Mr. Osborne, tried to fiddle the figures, by implication is the former Chancellor of the Exchequer Alistair Darling. He is now the shadow chancellor, the opposition spokesman on the economy. He joined me earlier and I asked whether all things considered it was fair to say the U.K. is in a worse shape than he led us to believe in March?


ALISTAIR DARLING, ECONOMIC SPOKESMAN, OPPOSITION: Well, this new independent office has found two things. Firstly, the borrowing is less than I forecast, so that is good news. And it rather contradicts the claims being made by the prime minister last week, that things were worse than he thought. Quite clearly our borrowing is better than we thought. In relation to growth, as Sir Alan Budd, who chairs this new body, has said, that in part, due to a worsening situation in continental Europe, where it looks like the economies are going to be growing more slowly than we thought. And that would affect the United Kingdom, as the European Union is a very big trading partner of ours. All of these things are subject to a considerable degree of uncertainty, as the report published today makes clear.

But I am pleased that borrowing is coming down. In relation to growth it makes the case that I have been making for some time now. That the British government, as well as other European governments, need to make sure they don't derail the recovery and they also need to make sure they have a strategy there for promoting growth, because if you don't get growth you will never get your borrowing down, as Japan has shown, for example.

QUEST: Well, yes. But that argument can be twisted around the other way, if borrowing is going to be less, Mr. Darling, then there is room to implement cuts now, because there isn't the same requirement for borrowing. That is another point, though, isn't it?

DARLING: Well, no, firstly our economy is growing, but it is a pretty modest growth. It is 0.3 percent at the latest estimate. If Sir Alan Budd and his colleagues are right, that the economy is going to grow next year by 2.6 percent, you know that is still pretty modest growth. Now, my concern is that unless you get growth, especially as the economy comes out of recession you'd expect stronger growth than that. Unless you get that growth then the cost of unemployment will be higher than it need be and your tax revenues would be less. The result is it takes you longer to pay off the (AUDIO GAP) here, that you shouldn't be reducing your borrowing.

The argument is about when you start doing so and the rate at which you do it. And of course that is a matter of judgment. My concern is that if you do what the conservatives and liberals say they want to do, you run the risk of derailing that recovery. Of making-resulting in higher unemployment, less good conditions for good for business. Now this is precisely what happened in Japan when they tried the same thing 10 years ago.

QUEST: What scope then do you believe there is now, for cuts to reign in, as part of a wider exit strategy, to get a budget back into balance?

DARLING: Well, my argument has always been that the recovery is pretty fragile, I'd like to see it entrenched and so to-I was very clear, I don't think we should be taking money out of the economy this year. Our plans, had we won the election, were to half it over the next four years. And I'd have stuck to that, because I think it is very important you do.

My worry at the moment is with everything that is going on-not just in this country-remember the British economy is pretty open, and therefore pretty dependent on the fortunes of other countries, too. And particularly when you look at what is happening in continental Europe, I'm worried that we are going to get into a situation that far from coming through this and getting steady growth, that growth is going to bump along the bottom for some years and at a considerable cost.


QUEST: The former U.K. chancellor, now the shadow chancellor, Alistair Darling talking to me earlier. Traders in Europe jumped into the market during the session after a report showed factories in the region are producing more good. Higher commodity metal prices boosted steelmakers in the Frankfurt and Paris market.

It was a sharp bounce back for Greek shares. The composite index was up nearly 4 percent in Athens. And that could well be at risk on Tuesday after the close of trade. The credit rating agency, Moody's, has cut Greek government debt to the level of junk.

We did see one stock in Europe loose a lot of ground. BP sunk more than 9 percent in London. And that, of course, took its toll on the U.K. market.

In just a moment, traders are beyond worrying about the cost of the clean up effort, or when the oil is going to finally stop flowing. Now, they're worried about the potential cost of what's happening behind the closed doors of the BP boardroom. Will the dividend be cut? In a moment.


QUEST: Before the break I told you that shares in BP made serious losses in London. They were down 9.3 percent; pretty much wiping out the gains that were seen on the Friday exchanges. And, of course, the worry on that sort of numbers is that the company won't distribute a second quarter dividend. Bearing in mind that if it doesn't pay a dividend-the board is meeting by teleconference now to actually discuss that-it is unlikely they'll be any answer. But, of course, if a dividend isn't paid, then the share price has to reflect the dividend, naught-it obviously has to have a premium taken out of it. Hence, the 9.3 percent.

BP is under pressure from U.S. politicians. The pressure is very firm and it is very targeted. And what the U.S. is asking is that BP takes the dividend money and puts it into either some sort of escrow account, or some sort of clean up fund. The primary fear being there won't be cash left. The company says, though, however, of course that $1.6 billion has been spent so far dealing with the disaster. And BP executives are due to meet President Obama later in the week.

That meeting is part of a very busy schedule for the U.S. president. That has largely, this week, will be devoted to dealing with the catastrophe (AUDIO GAP) at the moment. So, this is going to be the president's week as such. We start today, Monday. Now President Obama has already arrived in Gulfport, Mississippi, a few hours ago. He says he has engaged local officials in a very useful conversation about more effective coordination of relief efforts. He's also considering how to ensure BP does provide the necessary resources for what the president is now saying, in a fair manner and delivering in a prompt manner.

So that is President Obama, today, Monday, and tomorrow. But on Tuesday he will be in Alabama and Louisiana, and then on Tuesday night, President Obama gives his first Oval Office statement to the American people specifically on this subject. Obviously, this is a time for him rise to the occasion. It will be the first time he's given such a statement.

Now, on Wednesday, the CE-the chairman, Mr. Svanberg will be, of BP, will be a the White House. He is-it's not entirely sure yet, Tony Hayward is certainly going to be in the United States, the chief exec, whether he turns up at the White House with him-I've seen reports suggesting both ways. But this will be President Obama's top opportunity to tell Mr. Svanberg that it is time to get rid of the dividend, to put together some form of escrow account and to move the things forward.

So, the White House says BP seems willing to meet the president's demand for this independent, multi-billion dollar compensation fund. Our correspondent at the White House, Dan Lothian, joins me now from Theodore, Alabama.

There is clearly huge politics in all of this, Dan? So where will Mr. Obama be hoping to pitch his tent?

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: Well, I mean, you are right, anytime you have a situation like this and as, you know, we have seen the criticism that this administration has been under throughout this entire deal. So politics plays a big role in this. But what the president is trying to do is first of all show that he's fully engaged in this crisis. And, secondly, that he will hold BP accountable. That is why you are hearing the tough talk. And as you have been pointing out the president looking to BP to put aside funds in this escrow account, because a big concern among residents all across the Gulf is that will there be enough money to pay for their claims, for the small business owners, will there be money them as well?

So, BP seems to be willing to do this, but the president and his administration pointing out that they are willing to push for any legal possibilities, if need be, in order to make sure that that money is put aside. Now, the president, as you pointed out, landed in Mississippi, Gulfport, Mississippi, there he got briefed by Admiral Thad Allen, who is the government's point person here for this crisis. And one of the big concerns has been better coordination. There are a lot of skimmers out there, other small boats, they are laying down boom. And so there are some issues in terms of coordination. So the president said that they talked about better coordination in order to keep a lot of that oil from coming onto the beaches.

A second thing, obviously, as we have been discussing, the claims. A lot of concern from residents there in Mississippi, certainly here in Alabama, Louisiana, other Gulf states as well, about whether or not their claims will be processed and eventually paid. So they discussed that.

And then one final thing that we have not heard from this president is sort of sending out an appeal to say, listen, all of the beaches here are not closed. There are people here who are saying they are loosing their livelihoods because tourists are staying away. Fisherman are not coming to fish. We were near a bait and tackle shop where the owner there was saying that he has had to shut down early on some days. Yesterday a couple of employees went home early, as well. So the president is putting out sort of this national appeal saying there are still some beaches here that are open. Come here. And if you want to help out, the best way to help out is to come here for a visit.

QUEST: Dan, what about proposals and plans to actually curtail the oil? I know that the letter has been written, from the authorities to BP, saying you have got to do better. But are there any real plans on the cards to actually do that, or is the relief well still the best option?

LOTHIAN: Well, the relief well is still the best option at this point, but in this letter that BP released today, saying that they do plan to contain 10s of 1,000s of gallons of gasoline. It is much more than, I guess, initially thought, and much sooner they can get this done starting in June. So that is a positive step, if in fact they can retrieve all that oil.

But yeah, right now, it does remain the oil wells, these relief wells. They have tried everything. They put caps on top of it. They have been able to remove some oil, but a lot of oil, thousands of gallons still spilling into Gulf. So that, right now, is the last resort.

You know, I should point out, the reason we are right here, in Theodore, Alabama, is because President Obama will be coming here. We are the core industries. This is an area, one of 16 sites across the Gulf, where all of those booms that are being used in this containment and clean up operation are brought here to be decontaminated, to be repaired, volunteers and other workers who are dealing with this equipment are also trained here as well.

QUEST: All right.

LOTHIAN: So, this is the place where the president will come. He'll tour, then he'll make some remarks later this afternoon.

QUEST: Dan Lothian, in Alabama, many thanks. And when President Obama gives that first Oval Office speech, CNN will have coverage on Wednesday. It will be at 1:00 a.m. in London, the middle of the night, 2:00 a.m., Central European Time. And there will be a special edition of "LARRY KING LIVE" that will follow that Oval Office address.

In a moment, rebuild and regenerate. We going to be in Hamburg, in Germany, where we will show you the urban environment transforming a city's fortunes and the lives of the people who live there. It is part of "Future Cities" only on QUEST MEANS BUSINESS, in a moment.


QUEST: There are 100s of millions of people like you and me, who live, work, and we do business everyday in the cities around the globe. Improving our lives within these cities is a major undertaking. It exercises the minds of some of the greatest people and planners around the world.

Hamburg is the site of one of Europe's biggest urban development projects at the moment. Part of that is an iconic building. It is designed to become a symbol for the very city itself, the City of Hamburg. It will uplift the cityscape, and the idea is to uplift the lives of those who live there, "Future Cities".


QUEST (voice over): London, New York, Sydney, the world's great cities and the buildings that brand them. Oh, and Hamburg, a beautiful city to be sure. But missing that one postcard image that resonates around the world.

JACQUES HERZOG, HERZOG & DE MEURON: I would have never thought of, let's say, of an architect setting out to design an iconic building. But hopefully (ph) it will open up a new chapter in the history of Hamburg.

QUEST: For the architects Herzog and de Meuron, the Elbe Philharmonic Concert Hall is next addition to their stellar CV, which includes the Bird's Nest Beijing Olympic Stadium, and London's Tate Modern. Now they are charged with giving Hamburg that signature building.

HERZOG: We tried to design the building the way that it can be successful. The views, good public spaces within the whole complex; the icon is perhaps the result of that success with the people.

QUEST: Started in 2007, the construction site looms large and imperious, 110 meters above the River Elbe. This is a building for Hamburg, a building with a higher purpose.

OLE VON BEUST, MAYOR OF HAMBURG (through translator): I think the international cities need a landmark. If you think of Paris, you think of (AUDIO GAP), Hamburg, in Germany, one thinks about the docklands (ph), or maybe its churches. Internationally, a building was missing that you could identify the city with.

SIMONE YOUNG, CONDUCTOR, HAMBURG PHILHARMONIC ORCHESTRA: Hamburg is very well set up already, in terms of music venues for classical music. We have the absolutely glorious Light Hala, Music Hala, that is limited to perform anything 20th century, we really need to be in a bigger more open space.

QUEST: Much more than a concert hall, the Elbe Philharmonic was conceived as a residential, leisure, and cultural delight. Complete with a luxury hotel, apartments, and that public plaza. Sitting at the tip of Hamburg's abandoned old port, it is the flagship project of Hafen City, the new district rising up, to the east. The building itself is being molded on top of Warehouse A. It is an old storage depot for cocoa, tobacco, and tea. Destroyed in the Second World War and then rebuilt in the 1960s. Its cubic shape and red brick facade are being preserved in the design.

HERZOG: We wanted to mix reality for the new building on the top to be more ephemeral, or let's say, play with light reflection, and with the water surface, and make the building more playful.

QUEST: 11,000 glass panels, each interacting with the elements of its watery environment. High up in the structure, the main concert hall will seat more than 2,000 people.

HERZOG: We tried different models, going back to the Greek model, of the very simple circle, when music is in the center and surrounded by people.

QUEST: It is hoped the first concerts will take place in 2013. Then the chief conductor and the musical director of the Hamburg state orchestra, Simone Young, will be responsible for filling the concert hall.

YOUNG: There is a considerable concern within the city that concerts aren't packed out, here, every night. What is going to happen when we have two big concert halls available and we are splitting the audience? I think it is really going to stimulate the musical life of the city. It is a phenomenon that has been seen in many other cities that had good halls, but suddenly they get a great new hall, there is a new public ready.

QUEST: Elbe Philharmonic is two years behind schedule. And the critics say that however iconic it may look, no single building can justify the spiraling costs. The price tag has virtually quadrupled to nearly $0.5 billion and most of that has been paid by the taxpayer.

Taxi driver Dirk Struve is used to people expressing their views in the back of his taxi.

For the feeling of fairly normal people here in Hamburg that is so much money, there is no money for the kindergarten and for the universities, and for the-all for the normal things for the normal people, you know?

QUEST: Those behind Elbe Philharmonic believe (AUDIO GAP) settled. No one will say lovely building, but shame about the cost. Instead, they'll focus on Hamburg's new icon.

YOUNG: I grew up in Sydney watching the opera house being built. I was born in '61, and the opera house was opened in '72. I watched the whole process. Heard all the dramas, and can say with hindsight that the great thing is 10 years after it is finished nobody is going to care terribly much about all the fuss beforehand. People are just going to be really excited that it is there. Comes down to vision, I guess. And how much it's worth.

QUEST: The architect Frank Gehry said, Architecture should speak of its time and place, but yearn for timelessness." Everything has been done (AUDIO GAP) Elbe Philharmonic speaks for the future of Hamburg and now it's time to listen.


QUEST: "Future Cities" and all this month we will be in Germany, and Hamburg, looking at the various projects that makes this most traditional of cities so where to look forward to in the future.

Now, in a moment, you know who is doing well at the World Cup on the pitch, but we're keeping score on the economic World Cup, in just a moment.


QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS. This is CNN where the news always comes first.


QUEST: At least 80,000 minority Uzbeks have fled to Uzbekistan and thousands more are massing at the border to escape Kyrgyzstan's worst ethnic clashes in decades. At least 114 people have been killed, many in the southern city of Osh. Kyrgyz gangs are reportedly torching Uzbek neighborhoods and then shooting fleeing residents.

Israel has approved a probe of its deadly attack on a Gaza-bound flotilla. The Palestinians and Turkey both say it falls short of demands for an impartial investigation. The commission will include three Israeli officials and two foreign observers. Nine pro-Palestinian activists were killed when Israeli commandoes raided their aid ship two weeks ago.

A stunning discovery could change the economic fortunes of Afghanistan. U.S. geologists say the country's untapped mineral deposits could be worth nearly $1 trillion, according to "The New York Times." The previously unknown deposits include iron, copper and lithium. They're so huge that U.S. officials believe Afghanistan could eventually become one of the world's most important mining centers.

Japan's Hayabusa Explorer has returned to Earth after being the first spacecraft to land on an asteroid. The Japanese Explorer ended its seven year mission in a giant fireball over the Australian Outback. It managed to jettison its precious cargo before burning up. That cargo is a capsule that scientists hope contain asteroid dust and clues about the solar system.

Earlier today in South Africa, the Dutch got one over on the Danes in the Netherlands versus Denmark in their opening World Cup clash. The final score was 2-0 to the Netherlands. Only one of those goals was actually scored by a Dutch player.

Isha Sesay is in soccer city on the highs and lows of day four of what's turning into a humdinger.


Hi, there.

It's been an unpredictable say, to say the very least. As you pointed out, that match between the Netherlands and the Den -- and Denmark going the way of the Dutch. That brought the first own goal of the tournament. Denmark's Simon Poulsen had a header that basically hit the back of teammate, Daniel Agger, and found the back of the net -- one of those moments, Richard, that no World Cup player wants. It lives on in infamy along with -- alongside that gaffe by Robert Green of England, of course, a couple of days ago.

But the final score was 2-0. The second goal was a tap-in by Dirk Kuyt. He got that in the 85th minute.

So a good day for the Netherlands, although it wasn't exactly a convincing performance. But they will take the three points.

Let's talk about the other game of the day so far, that one between Japan and Cameroon. Richard, again, a game that I would never have predicted this score line of a win for Japan. Cameroon, of course, having one of the world's best goal scorers on their team in the form of Samuel Eto. He's been an African Footballer of the Year three times, yet couldn't find the back of the net in this match. The play was disjointed. They were just, you know, throwing long balls. And, really, Japan, you know, broke the deadlock on the 38th minute. It was Honda who got the goal. Poor marking led to the -- to the goal. He basically just tapped it in at the far corner.

So Japan securing their first win on foreign soil. And worth pointing out that just minutes ago in Capetown, the prime time evening match started between Italy and Paraguay. Italy, of course, the reigning champion of the World Cup.

But this is not a team that's particularly favored, Richard. The sense among many is that it's an aging team that's lacking pace. And Paraguay, they come into the swummer (ph) with a really good form. They beat Brazil and Argentina in qualifying. So this should be a really tasty match in Capetown.

But it's just getting underway, currently 0-0 -- Richard.

QUEST: Right.

A quick question to you, Isha.

If you were just looking at football, who should win, Paraguay and Italy, in your view?

Just football.

SESAY: If you're just looking at the football, I still say, despite the fact that Italy is an aging team, I'm going to give it to Italy, because they've got a lot of talent and a lot of skill.

QUEST: On QUEST MEANS BUSINESS, we are now going to say thank you to you, Isha Sesay.

And we are going to put football into the back of the net, because we turn our attention, when it looks at the matches, to the Economic World Cup.

So Denmark versus the Netherlands. You hear Isha talk about exactly how that match played out earlier in the day. But if they were playing in the economic league, well, there you see a very different picture.

For example, Denmark has growth of 1.6 percent; the Netherlands, 1.3 percent. So we're going to give that one pretty much an even draw for that in terms of the Netherlands.

If we look at unemployment, Denmark has 6.9 percent; the Netherlands, 4.9 percent. That's a win for the Netherlands.

Inflation, Denmark, 3.6; the Netherlands, 1.3. Another win for the Netherlands.

And perhaps Denmark only just inches out when it comes to the question of the deficit.

So, economically speaking, when you challenge the Netherlands and Denmark together, who wins?

The Netherlands, which is exactly how it worked out when they played on the pitch, 2-0. The Economic World Cup and the FIFA World Cup seem to be playing out as it's meant to.

But tonight's game, hmm-hmm -- Jim Boulden.

JIM BOULDEN, CNN CORRESPONDENT: It just started, hasn't it?

QUEST: Italy and Paraguay.


QUEST: Who is supposed -- on -- on economic grounds -- to wino this one?

BOULDEN: Easily, easily Italy.

QUEST: You are so misguided.


QUEST: Tell me why you think these...

BOULDEN: Well, the seven...

QUEST: Economically.

BOULDEN: The seventh largest economy in the world; Paraguay somewhere around 100, 110, depending on who you look at.

QUEST: Right.

BOULDEN: I know the unemployment rate is a little bit higher in Italy, but it's got a much bigger export economy.

QUEST: Whoa, whoa, whoa, whoa...

BOULDEN: And it's got...

QUEST: Come on.


It's much bigger.

QUEST: Italy...


QUEST: -- has growth of less than 1 percent. Paraguay will have growth of 6 percent. If that's not a penalty to the back of net, what is?

BOULDEN: That's a known goal on your part. You're talking about a very low base. It's coming from a very low base. It had a very, very rough time in the recession, Paraguay. And I didn't know this until just looking this up -- the second poorest economy -- the second poorest country in all of South America.

QUEST: You have just kicked offside because that is just clearly not relevant when you think that Italy also has debt to GDP of 118 percent versus Paraguay's what number?

What number?

BOULDEN: Well...

QUEST: Twenty-three percent.

BOULDEN: Twenty-three percent.

QUEST: Twenty-three percent.

BOULDEN: Twenty-three percent. It has one of the world's weakest econ -- weakest currencies, the eighth weakest currency in the world, the weakest currency in all of the Americas, which I didn't realize. And it is as a -- sadly, somewhere between 50 to 60 percent of the nation is considered to be in poverty.

QUEST: You're still missing the point in terms of defending this rather weak pitch that you have put out in there.

BOULDEN: Well...

QUEST: Unemployment -- remind me of the numbers of Italy's unemployment.

BOULDEN: Oh, 7.8 percent. Somewhere around there.

QUEST: Eight percent, whereas Paraguay comes in at 5.7 percent. Whichever way you look at this...

BOULDEN: Well, Paraguay has a big informal economy. It seems to export things and then import them back in in a different price. That seems to be the game that's played there.

QUEST: Old and nearly bust, small but mighty.

BOULDEN: Well, who needs it more?

Paraguay, no doubt.

QUEST: Hmmm?

BOULDEN: Who needs it more?

Paraguay. What -- what a great thing that would do to the country, especially since next year they're going to have to revalue their currency.

QUEST: How -- you've thrown currency in, another end goal. Italy has (INAUDIBLE)...

BOULDEN: I know -- I had to deal with that on Friday and Saturday.

QUEST: You're going to deal with it (INAUDIBLE).

BOULDEN: With the euro every time.


BOULDEN: Italy is certainly expected to go through easily. Paraguay, because South American, obviously, people would think it has a chance to go through. New Zealand, I don't even know how they made it into the World Cup. Sorry about that, those from New Zealand.

And Slovakia, of course, a relatively new country, could have a chance because the Europeans can do quite well. But the Europeans don't tend to actually do well at World Cups where it's not in Europe. And, of course, you look at New Zealand, obviously, pretty good economy, especially the -- relative to what we've see in the rest of Europe...

QUEST: All right...

BOULDEN: -- but certainly as an Asian economy, it's not doing as well.

QUEST: You're prepared to endure grubazula (ph) tomorrow when we -- all right, listen, how would you like to see -- just move to one side, Jim, if you would please.

Stay where you are.

How would you like to see your picture in this particular screen?

We want to know how you're celebrating the World Cup at your workplace.

Send us your pictures and your stories of how you are celebrating at work. It's the World Cup At Work. And Jim and I will have a good chuckle as we put it into this particular picture.

BOULDEN: All the Paraguayan workers -- civil workers -- are allowed to watch this game. They're all off. Not a single of them is working at this moment. The government allowed them all to have the time off.

QUEST: And you're saying that that's (INAUDIBLE).

BOULDEN: Well, no, I think it's a good thing.

QUEST: All right.

BOULDEN: It's a good thing.

QUEST: If you want your picture, it is @richardquest, the Twitter. It is for the World At Work.

Jim Boulden will be back with more of our Economic World Cup in the days ahead.

Now, they are the drivers of the Eurozone economy.

Who's really in charge when it comes to France and Germany?

They're finding common ground. We'll be in Berlin and in Paris, in a moment.


QUEST: The president of France and the chancellor of Germany spent two hours hashing on what they agree on and where they differ and trying to find a common approach to the region's economic problems. It's all ahead of a major E.U. summit on Thursday.

Is there any other kind?

There have been rumors of tensions between the two camps. They seem to have put on a united front today.

CNN's Diana Magnay joins me from Berlin, the German capital.

Look, what -- what -- what was the area of disagreement and did they patch it over?

DIANA MAGNAY, CNN CORRESPONDENT: Basically, Richard, the area -- the bone of contention between France and Germany was the question of economic governance. Paris wanted a -- a new institution, basically, with a secretariat and regular meetings. And it wanted that to be confined just to the 16 countries of the Eurozone.

Germany was always fundamentally opposed to that and it also believed that it should encompass all 27 E.U. member states, any kind of economic policy.

So what the compromise that they reached was that there should be economic government of all 27 E.U. member states, but that it shouldn't be any new kind of institution and that the 16 Eurozone countries could and should meet when they absolutely had to, when there was a crisis in the Eurozone, but that they -- there wasn't going to be a kind of first and second class...

QUEST: Well...

MAGNAY: -- ranking of the EU. That was basically the compromise that they came to.

QUEST: Chancellor Merkel has problems left, right and center, mainly with her own coalition. Lost a president and it might not get the president -- the presidential candidate she wants, has problems on the military front.

Does she need this agreement with Paris?

MAGNAY: Absolutely. It's very important for her to be able to send a signal to the markets, to the rest of Europe, that she is able to find some degree of unity with her most important partner within the EU, especially at a time when, as you say, that she has this whole raft of very, very serious problems in her own government here in Germany.

So this is very important. And France has always got at Germany, really, for going on the austerity side of the austerity versus growth debate. And what the German chancellor said in this press conference, which was interesting, she said: "Seriously, if you look at my spending program" -- and this is what she's also come under a lot of criticism for - - "you really can't think that these cuts that I'm making are going to stifle growth in my economy."

And I think that was also a signal that she really wants to send out there, that maybe all this austerity labeling, doesn't it really have as much truth as people like -- would like to see in it -- Richard.

QUEST: Diana Magnay and what seems to be a picture perfect evening in Berlin this evening.

We now go to Paris.

And the journalist and analyst, Christian Malard, joins me to put that side of the issue.

We've heard from Diana that Merkel needs Sarkozy and he needs an agreement.

But where is the strength for Sarkozy in being seen to be tied to what could be a sinking ship of Merkel?

CHRISTIAN MALARD, ANALYST, FRANCE 3 TELEVISION: Well, let's -- let's put it this way. Sarkozy and Merkel, it's like in a couple. You have ups and downs. It's clear that today, Sarkozy -- President Sarkozy had to make some concessions, to go the way Angela Merkel, Chancellor Merkel, wants to go to make tightening the financial regulations, to make more -- let's say, to have more quierent (ph) economy governance.

I think, you know, Europe cannot work without the Franco-German axis. And to some extent, of course, even if they are not in the Eurozone, we need the British.

But talking about the French and the German, they have to speak one and the same voice. This is what they tried to do today, at a very crucial moment of the crisis, again.

QUEST: Right. But -- but fundamentally, do they see eye to eye, bearing in mind that Chancellor Merkel, whether she likes it or not, is weakened domestically. Nicolas Sarkozy is also weakened, to some extent, domestically. But he would like to follow a more pro-growth strategy than other countries.

MALARD: That's right. You are right, Richard. But at the same time, as I said, Chancellor Merkel is not -- she's weakened, as you say. Sarkozy is not in a very strong position. You are right. But I would say that Angela Merkel is not in the same position as the one where Sarkozy is. Chancellor Merkel is weakened. She has problems with her coalition. She has problems with the threat of resignation of her secretary of defense, problems with the recent resignation of the president of Germany.

OK, even if it's a symbol, it's a symbol of the crisis at the same time.

Sarkozy has more potential to decide on his own. He has no coalition. He has his own government. He can move forward. And I think tonight, the good thing for Germany and for Europe is he understood that he got -- he has to go -- sometimes Merkel came on his way. He has to go Merkel's way.

QUEST: Right.

MALARD: He has to strengthen her.

QUEST: But...

MALARD: And this is why I think he make concession tonight. The French make concessions to the Germans. And we needed to have this couple work and move forward if they want to make Europe move forward, also.

QUEST: But -- but if we -- if we pull the strands together and we look at the unpopularity of so many European leaders, would you say -- and forgive the mass generalization of the question, but would you say substantially people are -- are still prepared to give Nicolas Sarkozy the benefit of the doubt for his handling of the Great Recession?

MALARD: Well, sure. Sarkozy said recently, if you remember, Richard, adding austerity to austerity may lead us to another recession. It's clear that Sarkozy doesn't want too tough austerity. But at the same time, he has to understand that on her side, Angela Merkel has to take tough, drastic economic steps to reduce the deficit.

And I think in a certain way. Look at what happened recently. The -- the German, Mrs. Merkel, decided to have this (INAUDIBLE) action economy of 80 billion euro. Sarkozy is 100 million euro until 2003 and then 13. The same thing for Angela Merkel.

It they understood that they have to align on one another and to work one in hand, hand in hand, speaking one and the same voice. And I think it's to gone -- to give a strong signal to the market -- France and Germany are together.

And, of course, one thing they said tonight and I -- you -- you know it is that, Richard -- is OK, if, through some time, we have to take more decisions, to be more pragmatic, to be more flexible, we will have a meeting of the Eurozone at 16...

QUEST: Right.

MALARD: The 16 countries of the Eurozone. But globally, we need to go altogether on the same boat of the 20-7 and we are not going to be the Titanic.

QUEST: Christian, you have put a picture into my mind. Angela Merkel and Nicolas Sarkozy hand in hand. And that's enough to put us off for -- for dinner perhaps for this evening.

Many thanks, indeed for joining us.

MALARD: Thank you.

QUEST: We have seen just then delightful pictures of weather in Europe from Diana -- behind Diana Magnay, a gorgeous evening. And Christian looks like he has a pleasant evening in Paris -- Guillermo, do we need you now for the world weather forecast?

GUILLERMO ARDUINO, CNN METEOROLOGIST: Yes, I think that Berlin had bad weather before. I was checking it out. London looks good. We have some light rain showers at the London City Airport now clearing. I think the next two or three days are going to be gorgeous, gorgeous according to what I like. So chilly, nippy in the morning and the evening, and then 20 degrees during the day. Pretty nice.

The problems are here. And watch out, France and parts of Spain. We already have intense rain in Sardinia and Corsica. We are going to see intense rains with this low pressure center here all across Southwest France into the northern parts of Italy, the Liguria Coast here into Milano; also, at Tarantino, Alto Avije (ph) and into Valdosta, the Piedmont Region, with intense rains. Barcelona, watch out. Genoa, watch out. You will see a lot of rain, as well. And we have evidence of it happening as we speak. Look at the satellite picture.

Northern Algeria, you know what I'm talking about. Tunisia, the same thing. But here, as we go to the north, those two rain shower events actually clear and the clouds move down into France, into Paris.

Now, when I said watch out southwest parts of France are going to see the bad weather, don't think that the rest of the country is going to be fine, because we will see, also, some rain, I would say all across France.

Now, I'm looking at what's going on in Hungary. Hot conditions in the south and the east. We are going to see severe storms. Thunderstorms in the forecast. If you are watching from this area here, anywhere in Ukraine, Belarus, the Czech Republic -- parts of the Czech Republic, Slovakia, watch out, because you are going to see, also, some severe weather.

Rome with winds, perhaps no rain. But we are going to -- you are going to get hit by winds. And then it gets a little bit better into the Low Countries and Copenhagen, and Denmark. We are going to see some windy conditions.

Temperatures not too badly. Now, if you look at the east, 37 in Bucharest, 32 in Athens. That's a little bit warm. But high pressure in the Aegean Sea, the Mediterranean Sea, Crete and Italia and Turkey for the next two days. Cyprus clearing. Some clouds and then in the clear.

This is what I was talking about here in Algeria and Tunisia.

But let's go south into South Africa, if you're watching from there. All the coast here -- Capetown, Port Elizabeth -- we are going to see rain. Johannesburg is going to be fine.

And, Richard, I think that you, for the next three days, like my English teacher in Argentina, Horace Wooten (ph), would say, you're a lucky chap. Nice weather.

QUEST: Well, yes. Let's wait until the end of the week...


QUEST: And then -- you know, there's some -- there's some famous philosophical saying that it is only at the end of the day that you realize how well the weather went -- or something like that. I'm sure some viewer might write to me and tell me who actually said it. It was Aristotle or somebody. I don't...

ARDUINO: You want everything.

QUEST: No, no. I'm just trying to remember what that saying was. Something like...


QUEST: -- it's only at the end of the day that you can tell how well the weather went.

Anyway, we'll talk about that at the end of the week.

Many thanks, Guillermo.

ARDUINO: Thank you.

QUEST: When we come back, the workshop of the world is having to deal with some very angry employees -- the latest labor unrest in China and what it could mean for the country's economy.


Good evening to you.


QUEST: A growing wave of discontent is threatening to change the way factories are being run in China. A strike at a Honda car parts plant came up today. Once inside the factory gates, many workers continued to make their anger felt.

And CNN's John Vause now tells us, the latest industrial arrests may be the tip of the iceberg.


JOHN VAUSE, CNN SENIOR INTERNATIONAL CORRESPONDENT: (voice-over): Labor negotiations, China style. A factory manager counting down the minutes until the start of the Monday morning shift and with it, a take it or get fired offer would expire. Slowly, almost all the striking workers return to the assembly lines at this plant, which makes door locks, rear and side mirrors for Honda.

But once inside, the industrial action continued. A company spokesman telling CNN, most workers there are now on a go slow -- a new tactic in an industrial campaign which began last week over demands for an extra $60 U.S. a month. The company offered less than $30.

"The price of food is high. Our salary is not enough. After living costs and rent, we have nothing left," says this striking worker.

The labor unrest comes after strikes at two other Honda suppliers in recent weeks. But the relatively big pay increases were given to end disputes which had temporarily stopped production at all four Honda auto plants.

But instead of giving in this time, Honda started recruiting new workers, essentially strikebreakers.

"I've been looking for a job for months," he says. "I may want to work here."

And offering wages higher than the striking workers were demanding.

(on camera): But Honda's troubles are just the latest outbreak of industrial unrest here in recent weeks, especially in the country's south, where workers have been making the most of a labor shortage to push for better conditions, more money. Some analysts say if those wage increases continue, it might fundamentally alter China's low cost manufacturing model -- the same model which has been driving this economy for almost 30 years.

John Vause, CNN, Beijing.


QUEST: And when we return in just a moment, a Profitable Moment on QUEST MEANS BUSINESS.


QUEST: Tonight's Profitable Moment.

It will be a big week for both BP and President Obama, as their mutual fortunes have become inextricably linked to the Gulf of Mexico oil spill. Today's blame culture requires a scapegoat. And here, both president and company are in the firing line.

The president has said that's nothing anti-British in his bashing of BP. BP says it's doing everything it can.

One can only hope that by the end of the week, all sides remember, no one benefits if BP goes under. It will be extremely difficult to avoid the rhetoric heating up again.

The president speaks to the American people on Tuesday night from the Oval Office. BP executives give testimony before Congress. Everybody will be like the birds caught in the oil.

And that's QUEST MEANS BUSINESS for tonight.

I'm Richard Quest in London.

Whatever you're up to in the hours ahead, I hope it's profitable.

"WORLD ONE" is now.